Secondaries and trends in Venture Capital according to Staffan Mörndal from Verdane
We asked Staffan Mörndal from Verdane about secondary direct transactions and the current investment environment. Here are his insights.
1. What are the impact investing forecasts and trends that you think will shape the industry in 2020?
There’s a huge shift of capital towards impact investment going on at the moment. The Global Impact Investing Network’s data suggests that the amount of assets under management in impact funds has doubled every year since 2016 - I’d expect that to continue and by the end of 2020 the number will be over $1 trillion.
There will also be lots of interest in impact VC and PE because we invest at the most important stages of a company's life from an impact perspective. By working with early-stage companies investors get to help shape the impact of those companies. That’s much harder if you’re dealing with public companies or later stage private businesses.
2. What is the primary driver for Bethnal Green Ventures' interest in impact investing, and how do you see it fitting into a larger portfolio of traditional investments and charitable activity?
We see changing the world for the better as a brilliant market opportunity. There’s huge value to be unlocked by tackling the problems the world faces from the climate crisis to health and education. We back tech businesses addressing these problems because technology is an enabler of scale and speed - these are urgent problems that we need to crack before 2030.
A lot of ‘traditional’ investments will become ‘legacy’ investments with asset owners gradually having to find a way to dispose of them safely. You’re already seeing that with coal, oil and gas stocks. Our view is that impact investing will become the mainstream over the next decade and it will be completely standard to consider the social and environmental impact of an investment as well as risk and return.
There will always be a role for charity and donations where a market solution isn’t possible but we think innovative businesses can address a lot of social and environmental problems, providing really exciting investment opportunities.
3. Why should investors choose impact investing over standard investing?
Standard investing could be bottling up problems for the future. If you don’t know what the impact of your investments is then it could well be negative - why would you take that risk?
If you invest wisely there is no compromise on returns in impact investing - indeed many impact funds are outperforming ‘standard’ funds. The only issue at the moment is that the universe of funds and other products is relatively small.
4. What are the main challenges associated with impact investing, and what are some lessons investors should keep in mind to define the right approach and to maximize the benefits of sustainable investing?
Measuring the impact of investments is still an evolving field. At BGV, we only invest in businesses where the impact is directly linked to their business model - this makes it much easier to show that the more successful the business, the greater its impact - but not all investors do this so you need to be sure that they’re measuring impact properly.
‘Impact washing’ is becoming a problem. Some larger financial services firms are rebadging existing products as ‘impact’ without changing the underlying investments. However, it’s going to come back to bite them as more independent actors rate funds for impact, those without genuine impact integrity won’t fare well.
Author of this article is, Paul Miller OBE, Managing Partner and CEO at Bethnal Green Ventures
About the author:
Paul Miller is Managing Partner and CEO at Bethnal Green Ventures, Europe’s leading early-stage tech for good VC firm. BGV has invested in over a hundred companies working toward healthier lives, a better society and a sustainable planet and has pioneered tech impact investing in Europe. Paul's also written widely about impact investment and early-stage technology ventures including 'The Startup Factories' about the rise of accelerator programmes (Nesta, 2011) and 'Good Incubation' about different methods of supporting new social ventures (Nesta, 2014). Previously he was co-founder and CEO of an education technology startup and worked for two think tanks - Forum for the Future and Demos.